Hoarding Cash

Weekly Briefs
19 Jun 2021
6 min read
Hoarding Cash

Cash is king, or at least it used to be. Jamie Dimon, the legendary JP Morgan CEO, explained in an interview that “hoarding cash” is a good strategy. If the Federal Reserve increases interest rates, the market will bring new investment opportunities. Preparing for that moment and having available liquidities may seem the right choice. But, is stockpiling cash a good idea?

Place a bet or wait for the next hand? It is the eternal dilemma of every rookie gambler. Seemingly, a senior investment banker is no different from a rookie gambler who is learning how casinos work.  Investment banking lost its glory. The democratisation of investment services accelerated by the digitisation resultant from the coronavirus crisis hampered Wall-Street’s power. When facing an unprecedented market configuration, a seasoned investment banker is as green as an averagely informed person.

How does a casino work? Casinos engineer the mindset of gamblers to bring all their liquidities in the house of the rising sun. Anyway, money should never sleep.  Isn't it?  The gambler believes foolishly that he/she can bring the house down. Through this process, money changes hands from individuals to casinos.

The current situation across all markets is no different. Most individual investors are going through an investing frenzy, believing that if they do not buy assets, inflation will erode the value of their money.  Thus, the price of equities, crypto and real estate followed an unforeseen explosion amid structural economic decline. All monies stockpiled throughout the 2010s are now injected in all kinds of assets.

In the long run the bubble will burst. No investors in their right mind would need over-inflated assets that have low or zero productivity.

We have a lot of cash and capability and we’re going to be very patient, because I think you have a very good chance inflation will be more than transitory. Jamie Dimon, JP Morgan CEO

Market overview

The stock market entered into negative territory, the S&P 500 losing almost 80 points since last week. Bitcoin prices tested successfully the 40,000 mark but crashed below 36,000 amid market turbulence. The gold ounce plunged below 1,800 USD, despite rampant inflation.

The only thing that gained momentum is volatility, the VIX climbing above 20%. The fast spreading Delta coronavirus variant is a real reason to worry. The new mutant will test the efficiency of vaccines. If the result is negative and a new lockdown is required, the market reaction could be violent and volatility could spike significantly.


Coca-Cola left in offside

“Agua” means water in a free translation from Portuguese.  One simple harmless word can damage a global brand dominating the market of non-alcoholic beverages. During a press conference, following a Euro 2021 match, Cristian Ronaldo removed two Coca-Cola bottles from view. The market reacted and Coca-Cola’s share plunged by cca. 2% in one trading session. The dip was not transitory and the world’s leading beverage supplier continued to lose value.

Coca-Cola is the key sponsor of the European Championship and there are many legal binding rules prohibiting teams and officials from hampering the brand’s reputation. Needless to say that such policies do not apply for CR7. Ronaldo is reputed for promoting a healthy lifestyle who avoids carbonated drinks and alcohol, thereby explaining his unusual longevity in professional sport.

The pandemic underlined how poor the state of population’s health is in western countries. The massive consumption of unhealthy foods is one of the causes. “Agua” is a word that could generate a revolution against the mainstream food and beverage firms.


Draft Kings

The pandemic brought to our attention an underrated investment vehicle called SPAC. SPACs are good for you especially if you are an investment banker. The real problem with SPACs is that you invest in an empty shell. The assets behind a SPAC can be opaque and sometimes doggy. It is the case of DraftKings, according to Hindenburg Research a world class shorter, DraftKings is a leading American daily fantasy sports contest and sports betting operator. The company got listed on NASDAQ following a merger between DraftKings, its SPAC sponsor, and a Bulgaria-based gaming technology company called SBTech. The problem is that the profit comes mainly from the Bulgarian firm. SBTech accounted for 25% of total revenue at the SPAC consolidated level  and was the only firm bringing money into the deal. SBTech’s turnover seem to come from black market, as the Bulgarian betting company is active in multiple countries where gambling is banned.

Market outlook

The Dow Jones lost cca. 1000 points ending the week below the 33,300 support level.  We could be at the beginning of a significant summer correction and a period of market turmoil.  

The world’s leading cryptocurrency is still in murky waters and the different announcements could lead to substantial market  dislocations. This is not the end of the bearish cycle, and for the moment, there are no signs of an exit from the turbulent zone.  

The Gold ounce ended another week in negative territory going through a massive contraction below 1,800 USD. Gold prices behave unusually for an inflationary period. Paper may not be the right hedge and the inside inventors may opt for physical ounces.

General Disclaimer
The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

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